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Total remuneration option to be removed

18 July 2008

Changes to the KiwiSaver Act 2006 introduced last December confirmed employers could adopt a "total remuneration" approach to KiwiSaver contributions.

This meant an employer could agree to pay its employees a fixed amount of salary or wages. If a particular employee chose to join KiwiSaver, both the employer and employee contributions1 would be deducted from their pay. The law said that, to be valid, a total remuneration arrangement had to be agreed with an employee on or after 13 December 2007.

This approach appealed to some employers, particularly (in our experience) smaller businesses, and was also used frequently in senior executive agreements. It ensured the employer's overall remuneration costs were certain, rather than being dependent to any extent on how many employees joined KiwiSaver. The employer therefore did not have to reduce overall wage and salary payments to take into account uncertain KiwiSaver costs. Instead, those costs were borne by the staff who joined, and those who did not join received more in their hand. To some employers, this seemed fairer.

We have advised that employer clients should in most such situations look at disclosing their receipt of employer tax credits and (with exceptions) passing the benefit of those tax credits back to employees.

Clearly though, a total remuneration approach reduces the incentive for employees to join KiwiSaver.

While the details are as yet unclear, the Government has now announced a seeming intention that it will no longer allow employers and employees to agree to this approach. This change aims to ensure that the employer's KiwiSaver costs are borne by the employer's entire workforce, rather than only those who join. It increases the attractiveness of the scheme.

The Government's proposal is that there will also be changes to the Employment Relations Act to prevent employers treating employees who have joined KiwiSaver less favourably (for example by offering them smaller pay increases).

In a press release, Trevor Mallard says:

"There is no way that it is fair for one employee to be paid less each week in their take-home pay than an employee doing the same tasks, simply because they choose to be in KiwiSaver and the other employee doesn't."

Mr Mallard's comments, on their face, are surprising. The Government specifically legislated to allow a total remuneration option, but (although, as noted above, the details have yet to emerge) it has now indicated that it considers this approach to be unfair in principle. Unfortunately, a number of employers have relied on the December law allowing total remuneration arrangements, and have spent money implementing this approach.

As yet, no legislation has been tabled in Parliament. The Government has said the law change will come into effect on the day this law is introduced into the House, but existing employment agreements will not be affected.

  1. Generally employee contribution rates for KiwiSaver members are either 4% or 8% of gross salary or wages. Employers have to contribute 1% of the employee's gross salary or wages, increasing each year to 4% by April 2011. Some limited exceptions to these contribution rates apply until April 2011.

Changes to flexible working law

The new law governing flexible working arrangements came into force on 1 July 2008, namely the Employment Relations (Flexible Working Arrangements) Amendment Act 2007 – which introduces a new Part 6AA to the Employment Relations Act.

It allows employees who are responsible for the care of any person and who have worked for an employer for at least six months, to request flexible working arrangements.

Employers must respond within three months, either accepting the request or stating reasons why the request cannot be accommodated. Here, we offer some guidance for employers faced with requests for flexibility.

For more on changes to flexible working law, click here …

Casuals and temps: proposed changes

What about flexibility for employers?

Well, one way of achieving flexibility in managing inconsistent workflows has been for employers to employ workers on a casual, "as required" basis, or to utilise agency temps or employees on "secondment".

Those options will remain but on 22 June the Government announced planned law changes to secure "stronger protections" for casual and temporary workers.

It's early days yet, but Cabinet papers give some cause for concern. While proposals for a code of practice and an education campaign for casuals and temps have merit, those calling for more powerful Labour Inspectors and statutory interference in so-called "triangular" temporary and secondment arrangements need more careful consideration.

For more on the proposed changes, click here …

Other forthcoming developments

  • Employment Relations (Breaks and Infant Feeding) Amendment Bill – before select committee, reporting 22 July 2008.
  • Holidays (Transfer of Public Holidays) Amendment Bill – before select committee, reporting 21 July 2008.

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